THETRADETECH DA I LY
in-depth
THE OFFICIAL NEWSPAPER OF TRADETECH 2019
Buy-side need to invest in
alternative data to gain an
informational edge
THETRADETECH DAILY
in-depth
THE OFFICIAL NEWSPAPER OF TRADETECH 2019
‘Get away from the index’ Mark
Mobius tells active managers in
emerging markets
SPEAKERS AT THIS YEAR’S CONFERENCE LAID OUT HOW BUY-SIDE FIRMS CAN TAKE ADVANTAGE OF UNTAPPED ALTERNA-
EMERGING MARKETS EXPERT SEES OPPORTUNITY IN ACTIVE MANAGEMENT AND SAYS NOW IS THE TIME TO MOVE AWAY FROM
TIVE DATA, BUT WARNED AGAINST ANYONE LOOKING FOR A MAGIC BULLET.
THE INDEX.
B
uy-side firms may be sitting on valuable
amounts of alternative data from everyday
client interactions, though investment is needed
to turn it into an informational edge, according
to experts.
Alternative data, often categorised as big data
or information obtained outside of traditional
sources, is being utilised by hedge funds and as-
set managers globally for investment decisions.
With the form of data being a relatively newer
concept in cpital markets and largely unstruc-
tured, issues such as a lack of standardisation,
regulation and analytical abilities are holding
back widespread adoption and utilisation.
Panelists highlighted how the buy-side holds
proprietary data which can be ‘gold’ to them.
“Sometimes unstructured or alternative data
means not easily accessible,” said Anthony
Tassone, founder and CEO of GreenKey Technol-
ogies. “Sometimes people think acquiring this
data set can be challenging, but you may have
some of this data in house but you’re just not
enhancing it.”
“Most of you have tonnes of data you are not
accessing or leveraging, so some of the greatest
enhancements are allowing you to gain insights
from that data. Everyday interactions with
customers.”
Information sources such as social media,
blogs and the dark web have become alternative
data sources for market participants to apply
to their investment strategies, however one
provider argued that ‘hard work’ and ‘invest-
ment’ is needed for the information to be used
to create alpha.
“People are trying to present alternative as a
magic bullet where you can buy it off the shelf,”
said Olga Kokareva, head, data sourcing and
strategy at Quantstellation. “Even though it
sells and sounds like a good marketing pitch, it
doesn’t work like that.
“The truth is hard work and investment need
to be put into this process. For firms who can
manage to do that and put teams and people in
place, alternative data works.”
Kokareva added that in the future, she be-
lieves every portfolio manager will need to have
exposure to predictive analytics and big data to
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THETRADETECH DAILY
survive in the industry.
Alternative data providers use automation
and artificial intelligence to analyse trends, and
through such services as Twitter, can identify
relevant developments as they’re unfolding in
real time.
In March this year, Thinknum, an alternative
data specialist based in New York raised more
than $11 million in a funding round, in order to
expand the use of its platform across the insti-
tutional investment community. The company’s
alternative data platform has been used by
major financial institutions for equity research
and analysis, including Barclays, Goldman Sachs,
Cowen and Bank of America Merrill Lynch.
The panel added that barriers to widespread
utilisation of alternative data linger through a
lack of global standardisation and regulation.
Speakers also emphasised the importance of
workflow integration.
“People are trying to present alternative as a magic
bullet where you can buy it off the shelf. Even though it
sells and sounds like a good marketing pitch, it doesn’t
work like that.”
OLGA KOKAREVA, QUANTSTELLATION
M
ark Mobius has urged the buy-side to ‘get
away from the index’ and take advantage
of active management opportunities which
await in emerging markets.
The renowned emerging markets expert said
the trend to follow the index was one of the
reasons he left his famed role at Franklin Tem-
pleton Investments.
“The whole idea of us active investors now is
to get away from the index, and one of the rea-
sons why I decided to leave Franklin Templeton
was that we were always being forced to lean
towards the index,” said Mobius, while taking
part on a keynote interview.
“We say we’re active managers, but we go into
a closet and track beta, now we can say ‘we’re
not tracking the index at all, we can have 20% in
Egypt if we want.
“We’re looking at the Nigerians, Kenyans,
smaller markets which the indices will not
follow. The pool of money is growing, there’s no
doubt about that, it’s about where the alloca-
tion will be.”
Despite a major uptick in passive management
in emerging markets year-to-date coinciding
with a downturn in active management, Mobius
also predicted a change of fortunes, citing
recent meetings with investors in the US.
“The gap between flows of funds active and
passive shows you that there is a tremendous
opportunity in active,” he added.
“This is what we are finding with our clients: I
was amazed by the eagerness – I was in the US
recently with various pension funds and fami-
ly offices – because they said they’ve
followed these ETFs and now
need something specialised
and active.”
Speaking with Michael
Fidance, head of CEEMEA
sales trading at HSBC,
the two discussed a
range of emerging
markets including India
“One of the reasons why I decided to leave Franklin
Templeton was that we were always being forced to
lean towards the index.”
MARK MOBIUS, MOBIUS CAPITAL PARTNERS
and China, with Mobius having high hopes for
the former.
“The amount of IPO activity we expect in India
will be equal to China,” Mobius added. “China is
the big boy in this space mainly because of the
index activity. Look at the ETF flows its going
into China because it has a heavier weighting
in the index. But that’s just temporary activity
because India is coming up very quickly.”
China has been the big focus for emerging
markets given its market liberalisation, along
with a higher weighting of inclusion within the
MSCI index.
China’s A-shares will increase to 20% of MS-
CI’s Emerging Market Index; with total passive
inflows into China to top $600 billion, while
regulatory and market infrastructure changes
are also increasing access to RMB- denominat-
ed assets.
The TRADE is set to publish a special emerg-
ing markets supplement later this month,
in association with HSBC, and part of the
focus in the issue is on the variable liquidity
in emerging markets. Index inclusion, along
with market reforms, is something which can
have a major impact, making effective liquidity
management in emerging markets critical for
investment firms, particularly those operating
under regulated UCITS banners.
“Liquidity is a major problem, which is why
when we sign up a client we tell them to be
ready to hang this money up for the next five
years,” commented Mobius.
“The interesting thing now is that
a lot of the issues from emerging
markets are finding their way into
the London and New York mar-
kets,” he added, referring
to Alibaba’s listing on
the New York Stock
Exchange.
Issue 2
TheTradeNews.com
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